MCC risks split in Nepal’s ruling coalition

A much-delayed half-billion dollar US government project to upgrade Nepal’s infrastructure threatens to split Nepal’s governing coalition, amidst indications the Chinese have intensified lobbying with politicians to oppose it.

Prime Minister Sher Bahadur Deuba of the Nepali Congress (NC), a minor coalition partner Janata Samajbadi Party (JSP), as well as the main opposition UML support the project. But it is vehemently opposed by two Communist parties: the Maoist Centre (MC) and the Unified Socialists.

The strain within the coalition appears to have taken a turn for the worse after Prime Minister Deuba got wind that Parliament Speaker Agni Sapkota of the MC postponed a sitting of the House on Sunday that was to discuss the Millennium Challenge Corporation (MCC) project.

After a meeting of the five coalition partners on Saturday failed to agree on getting the MCC ratified by Parliament, Sapkota called off a scheduled House sitting for ten days without informing the prime minister.

Deuba is said to be so put off that he has leaked a threat to register a proposal to unseat Speaker Sapkota, and has hinted that he will push through the MCC even if it means a split in the coalition.

China’s Ambassador to Nepal Hou Yanqi has been meeting various coalition leaders in the past months to lobby against the MCC, the latest was a one-on-one with the opposition UML’s K P Oli at his residence on 22 December.

Then on Saturday, just after the inconclusive coalition meeting, the Maoist Centre’s Pushpa Kamal Dahal held an hour-long hush-hush virtual meeting on Saturday with Song Tao, the high-ranking head of the International Department of the Communist Party of China (CPC).

Although the conversation was said to have centred around greeting each other on Chinese New Year and Dahal being congratulated for being re-elected chair of the Maoist Centre, the timing of the online discussion on Saturday evening is seen as significant.

In November also, CPC officials had talked to senior party leaders in Kathmandu to actively dissuade them from passing the American project. The deputy head of the International Department of the CPC Chen Zhao had even called the UML General Secretary Ishwar Pokhrel on 13 December to try to change his party leadership’s pro-MCC stance. Zhao also spoke to Madhav Kumar Nepal of the Unified Socialists, and the latter is said to have assured him that he would not let the MCC be ratified.

Speaker Agni Sapkota has been known to be close to Beijing, and has made no secret for his opposition to the MCC, and this week was not the first time that he blocked ratification in Parliament. His predecessor Krishna Bahadur Mahara, also a close confidante to Dahal, was also publicly anti-MCC before he was removed from office in 2019 after allegations of rape.   

China’s suspicions about the MCC as being an American geo-strategic counter to its own Belt Road Initiative (BRI) can also be gleaned from Chinese academics who have been writing in state controlled media as well as in interviews with Nepali portals. Wang Yiwei of Renmin University in an op-ed in October called the MCC ‘American ploy’.

Besides geopolitics, the MCC has also become a factor as Nepal’s domestic politics as parties try to position themselves for upcoming local government elections in May and federal polls later this year.

Last week, Deuba managed to convince Dahal and Nepal to lift their opposition to holding local elections on time in exchange for keeping the coalition in an electoral alliance. Although NC insiders say they also got a commitment from them to back the MCC, the two leaders have denied this.

Both say they will back the MCC only “with amendments” to clauses in the contract that they say undermines Nepal’s sovereignty.

For its part, the UML has obstructed Parliament for the past six months, accusing Speaker Sapkota of allowing a breakaway group from the Nepal faction to keep their seats.

Amidst all this, Deuba appears to be losing his patience with coalition partners. He takes personal responsibility for having signed the MCC agreement during his previous tenure five years ago, and fears loss of credibility for Nepal from international partners if the agreement is not ratified.

Sources said that in Saturday’s meeting, Deuba actually brought up the possibility of the coalition splitting if the MCC is not passed. Deuba is gambling that an electoral alliance with the coalition is important for the MC and the Unified Socialists, both of which have been weakened by their split with the UML.

The UML itself is now playing coy, and K P Oli has made no secret of its aim to use the MCC to split the coalition. Deuba is determined to push the MCC to Parliament even if it means getting UML support, since the NC and JSP alone do not have the numbers to ratify it.

UML Chair K P Oli was a strong backer of the MCC when he was prime minister till July last year, and it was in fact his erstwhile party colleagues Pushpa Kamal Dahal and Madhav Kumar Nepal who weaponised the MCC to bring him down. Ultimately, this led to their Nepal Communist Party to split into the MC and the UML, and the UML itself later split with Nepal breaking off to form the Unified Socialists.

Having been so vehemently opposed to MCC, Dahal and Nepal can now not do a 180 degree on the project. And they also have to contend with the Chinese breathing down their necks.

One of the more vocal proponents of the MCC has been former Maoist ideologue and ex-prime minister Baburam Bhattarai who fell out with Dahal and is now with the JSP.

Bhattarai, who also has a PhD in urban planning, tweeted on Monday: ‘The MCC is a trial by fire for Nepal’s political parties, mainly the Communists. First: Will we try to balance the US and India and China or be beholden to one of them? Second: If we do not want American support, what will we do with aid from the WB, IMF or ADB? If an American grant is untouchable, how about aid from India, China or others?’

The $500 million project was signed in 2017 when Prime Minister Deuba led a coalition that also had the Maoists as a partner in government. The Americans have denied that the project has any military component, saying Nepal qualified for it and there are no strings attached.

Increasingly impatient with delays in Nepal and irritated with what it sees as Chinese obstruction, the Americans have sent a slew of high officials to Nepal in the past six months, who has also warned Nepal that project approval is time-bound, and the MCC can withdraw the grant if Nepal does not want it.

The project will pay to expand Nepal’s electricity grid with a 400kVA transmission line to distribute power from eastern to western Nepal, as well as export surplus to India. Nepal’s power producers could lose up to Rs142 billion annually if the electricity lines are not built to evacuate the estimated 5,000MW of generation capacity by 2025. The project also has a component to boost economic growth through improvements in highway connectivity in Central Nepal.